Assets' credit rating will drop under privatisation, agency warns

Amy Remeikis

Credit ratings agency Fitch has given the Electrical Trades Union its latest ammunition in its fight against the government’s privatisation plan.

Last week, Fitch announced it had revised the outlooks of state-owned electricity generation companies CS Energy and Stanwell from stable to negative, warning that a sell-off of the gencos could lead to a loss of the companies' AA credit rating.

“The Outlook revision reflects a weakening in the strategic linkages between the State of Queensland (QLD, 'AA'/Stable) and the company, should the entity be privatised, as viewed under Fitch's parent-subsidiary rating methodology,” the credit ratings agency reported.

“The proposed timing of this transaction is, however, only likely after the next state election due in mid-2015, given the state government's commitment to seek a public mandate through the state election.

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“A sale of the assets can lead to a material weakening of the rating linkages with the state leading to a multiple-notch downgrade of CS Energy's ratings to a level consistent with its stand-alone credit profile.”

ETU State Secretary Peter Simpson said the report “showed that privatising natural monopolies and essential services like electricity were irresponsible and economically unsound”.

The ETU’s latest salvo was fired on the same day the state’s tariff 11 power prices increased by a further 13.6 per cent or about $200 a year. The repeal of the carbon tax would see those prices increase by 5.1 per cent. The ETU claims that selling the state’s power assets will see a further price increase.

“It just gets worse for [Treasurer Tim] Nicholls - there is a growing chorus of organisations that are trashing his economic credentials,” he said.

“Mr Nicholls is either economically naive or completely incompetent. The companies he is looking to flog off will have their credit ratings downgraded because of the sell-off.

“Now even the Treasurer knows that a negative credit outlook will severely impact on their capacity to raise capital at reasonable rates. This will be the case whether it’s the fully privatised generators or the 49 per cent sell off of distributors.”

A spokeswoman for the Treasurer once again disputed the ETU’s claims that the proposed 49 per cent equity share being offered in Ergon, should the government win the next election, was a “sell-off”, reiterating that the state would retain “100 per cent ownership of the ordinary shares”.

And in a dance which will continue until the election and quite possibly beyond, she said the ETU was the one which had it wrong.

“The government has made the strongest and smartest choice to undertake a series of asset transactions to pay down some of the state's $80 billion debt but that will only happen if the government receives a mandate at the next election,” she said.

“The ETU continues to spread misinformation about the government's plans as it shouts from the sidelines in an attempt to scare Queenslanders.

“The credit ratings of individual companies is not a factor taken into consideration by the Australian Energy Regulator in determining price as the ETU should know.”

The ETU is just as determined not to back down.

“[If the privatisation plan goes ahead], the Treasurer is virtually guaranteeing that prices will continue to skyrocket,” Mr Simpson said.

“The newly privatised companies will need to pay more to borrow money and the increased borrowing costs will be passed on to Queensland consumers in the form of increased power bills.”

“So much for his government’s mantra of reducing cost of living pressures and putting downward pressure on electricity prices. His government’s agenda will do precisely the opposite.

“We call on the Treasurer to abandon his asset sales circus and sit down in a meaningful way to discuss alternative options that do not include selling essential assets.”

13 comments so far

Does our esteemed treasurer think he can lie and blather his way past the credit agencies in the same way he does to the Queensland public? If so, can someone please inform me what planet he lives on?

Commenter

Matt

Location

Brisvegas

Date and time

July 02, 2014, 12:38AM

No, he thinks he can bully the credit rating agencies into changing their message to suit his agenda. He already "called on" Moody's to change their outlook on the electricity businesses he wants to privatise.

Commenter

Mike

Date and time

July 02, 2014, 9:24AM

Matt, Our treasurer was elected to office on lies and blather as a member of a government that similarly was rewarded with government off the back of lies and blather. Why would they not continue with the formula that had carried them this far ?

Commenter

davros

Date and time

July 02, 2014, 11:33AM

The botttom line is that if the government dont sell soon they willl have nothing to sell.This is because coal powered power plants are being phased out in the rest of the world particularly USA. .The technology is environmentally very harmful and unlesss the Government legislates for a continuing monopoly these assets are doomed. You only have to read about advances in alternative energy technology to realise that this proposal is an attempt to delay the inevitable..The only way that the asssets can be infused with long term value is to give the buyers a license to exploit the public at great financial and environmental cost .Would anyone like to buy some snake oil.? Or is is a case that (self induced)ignorance is bliss.The LNP have made an art form of swimming against the tide of reasonable world environmental and economic opinion under the leadership of Tony Abbbott .This is another example. Regards Billbo Quesac

Commenter

Billbo Quesac

Location

Brisbane

Date and time

July 02, 2014, 7:42AM

It's pretty basic really. If we reduce the income of the state then these agencies are going to be scrutinising us a lot harder. These LNP clowns think that a state's budget is like a household budget (which it's not) then it goes to say that if a household gets rid of income producing assets they will be more of a credit risk. To follow that analogy to the end- the homeless man who saves his entire centrelink income because he doesn't have to pay rent, rates, bills etc is the poster boy for the LNP.

Commenter

sausagefingers

Date and time

July 02, 2014, 8:00AM

The LNP don't care about anything except their egos and their blind right wing ideology , I expect they will sell of the functions of the public service to private enterprise for a quick buck and the Police Service might well go too , we can have private Policing if there is a buck in it, Queensland will not only be the Moonlight State but the rest of Australia will know us as the Wild North thanks to the LNP

Commenter

John

Location

Wynnum

Date and time

July 02, 2014, 8:00AM

The LNP keeps telling us that Queensland is in a financially dire situation yet it is spending millions of dollars (where is the money coming from?) to convince Queenslanders to agree to sell our public assets. This is despite the fact that the majority of Queenslanders do not want to sell off these assets. Why would they when these assets generate an annual income of more than $1B? This latest information from credit agency Fitch shows that selling off our major assets will be detrimental. The LNP can't be trusted to run a chook raffle yet alone sell our public assets.

Commenter

LNP can't be trusted with our public assets

Date and time

July 02, 2014, 8:14AM

This has been borne out by recent history. So far we have privatised our railways, brisbane port, forests , motorways and a swag of smaller items. What has been the benefit so far: - increased debt - higher charges- lower credit rating.

Doh, Seems to be working let's privatise everything else!!

Commenter

Leonard

Location

Brisbane

Date and time

July 02, 2014, 8:31AM

So we sell the assets to pay down debt,then we build infrastructure to get debt,strange.

Commenter

Gazza

Location

Ashgrove

Date and time

July 02, 2014, 9:03AM

Of course the Treasurer is right because he is the Treasurer. What would a credit rating agency know about credit ratings anyway?